OECD launches information exchange whistle blower scheme

Secret bank accounts in far flung islands or mountainous locations are rapidly fading into history. First the United States imposed the Foreign Account Tax Compliance Act on the rest of the world via a series of intergovernmental agreements.

Israeli financial institutions have begun reporting details about the accounts of US persons to the Tax Authority who forward it all electronically to the US Internal Revenue Service (IRS). And the IRS has already started reciprocating with information about Israelis and their bank accounts.

And now the OECD is beginning to introduce the Common Reporting Standard (CRS) which is similar but not identical to FATCA. It will link financial institutions to tax authorities in another 100 or so countries other than the US.

All this information exchange about financial accounts is automatic and computer driven. But just to make sure, on May 5, the OECD added a human-driven whistle-blower facility on its on its Automatic Information Exchange portal.

The Whistle-Blower Facility:

The OECD says the portal allows interested parties to report potential schemes to circumvent the CRS.

This facility is part of a three step process the OECD has put in place to deal with schemes that purport to avoid reporting under the CRS. The steps in the process are: (1) identify reporting loopholes, (2) analyze them, (3) decide on action. Action may mean adapting CRS procedures or cracking down on secretive countries by quizzing them in so called “peer reviews” of how they implement CRS procedures.

Over 1,800 bilateral exchange relationships in place for the exchange of CRS information:

There are now over 1,800 bilateral relationships in place across the globe, most of them based on the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (“the CRS MCAA”). These bilateral relationships enable the CRS to be implemented rapidly.

With respect to the countries exchanging as of 2017, now virtually all have activated their relationships under the CRS MCAA, while a significant number of new exchange relationships have now been put in place with respect to 2018 jurisdictions.

In total, 100 countries have agreed to start automatically exchanging financial account information in September 2017 and 2018, under the CRS.

Comments:

There are thought to be over 3,000 tax treaties and nearly 200 countries in the world, so the CRS isn’t going to be of universal application with 1,800 “relationships” spanning 100 countries. But most of the main countries, onshore and offshore, are covered. Having an undisclosed bank account won’t be easy. The likely loopholes are thought to include real estate investments. In practice, this loophole may be illusory – property rental income and gains still have to be deposited in a bank account.

What about BEPS?

The CRS is assumed to be aimed mainly at individuals, but is it? The OECD has initiated a separate initiative called BEPS (base erosion and profit shifting) aimed at supply chain and financial chicanery by corporations for tax purposes. But it seems that if a corporation structures its supply chain so that interest and royalties are paid by onshore subsidiaries to offshore subsidiaries, CRS disclosure of their offshore bank accounts may act as a first tripwire. But if those bank accounts are onshore, withholding taxes may or may not apply depending on the locations concerned and any applicable tax treaties.

In other words, the taxation cat and mouse continues… As always, consult experienced tax advisers in each country at an early stage in specific cases.